What Are the Pros and Cons of Cash-Back Credit Cards?

Before you sign up for this type of credit card, make sure you know what you’re getting into.

Wish you could get paid for shopping? You can, say rewards-card issuers, who promise to give you back a percentage of your credit-card purchases every month (sometimes after you earn a preset minimum, ranging from $20 to $100). You receive the “cash back” in the form of a check, a credit toward your balance, or a gift card, says Ben Woolsey, the director of marketing and consumer research at the credit-card–comparison site CreditCards.com. Issuers offer deals to fuel customer loyalty, says Woolsey. Should you bite?

The pros: If you have a stellar credit score (720 or higher), you’ll qualify for the cards with the best rewards: 1 to 1.5 percent cash back on all purchases or up to 6 percent back in specific bonus categories, like dining, or at designated retailers. Some issuers offer a cash bonus for spending a certain amount within a specified time period (around $50 to $200), which means even more money in your wallet.

The cons: Cards with the most lucrative rewards (such as American Express’s Blue Cash Preferred, which pays 6 percent back on groceries) levy an annual charge of $50 to $100. Interest rates are higher, on average, than for standard cards. Some issuers cap how much cash back you can accrue in a year. And earnings in bonus categories are usually not automatic; you must enroll online each quarter to get them.

The verdict: It depends. Consider these cards if you spend a lot in categories that offer cash back, like gas or clothes, says credit-card expert Beverly Harzog, the author of Confessions of a Credit Junkie ($16, amazon.com): But if you carry a balance, “opt for a low-interest card or you’ll spend more on interest than you’ll ever get in cash back.”